The Life Pie
Posted by Gail | Filed under Budgets
Lots of people have been writing to ask about The Life Pie, how flexible it is, and what goes where.
Thank you so much for all the great work you do, you are a real inspiration! I applaud you and your whole team for all the good you are accomplishing. You are truly making a difference in the world and helping people in the right way, by giving them a hand up rather than a handout and that is the way to a better world! So Bravo! You are a financial angel! My husband and I really enjoy the show and were wondering if you could post the pie chart you often have on the show on your website with some handy tips. How flexible is the chart in your expert opinion? Is it okay to spend less in one area and more in another area according to your needs (except savings of course which should be 10% at the very least) for example more on life due to medical costs, but less on housing?
The Life Pie is very flexible and is only meant as a guide so that you have some sense of balance in your budget. If you’re way over in one place, you have to be way under in another. The bottom line is that you can’t spend more money than you make. And if you plug in your numbers and see that you are spending more money than recommended in a particular area, you will have a sense of what you may need to do next.
The percentages are:
- 35% for housing (mortgage/taxes, rent, utilities, insurance, maintenance),
- 15% for transportation (car payments, gas, repairs, insurance, parking, transit),
- 10% for saving (long-term saving),
- 15% for debt repayment, and
- 25% for life (everything from groceries to entertainment, medical to childcare… In fact, everything that’s not in the other four categories.)
The percentages are actually on the interactive budget beside the s/b (for “should be”) so you can see how your numbers compare to a balanced Life Pie. Find the budget through Gail’s Guide to Building a Budget, and read the instructions. It’s under the Gail’s Tools section on the blog.
As with everything else with money, we seem to be looking for hard-and-fast rules that we can bank on. And so we see the Life Pie percentages as cast in stone. Of course they are not. Nothing else in life is, right? So if your housing costs are higher than 35%, it just means you’ll have less to spend on life or transportation. (Don’t touch “savings!”)
Another piece of the pie that has some people scratching their heads is the guideline of 15% of your income for debt repayment. Obviously, if you have no debt that percentage gets divvied up into the other categories. If you do have consumer debt, the 15% guideline only means that if you are spending more than 15% of your income paying off your consumer debt you have waaaaay too much debt. IT DOES NOT MEAN you should only put 15% of your income to debt repayment. You need to put as much of your income into debt repayment as necessary to get all your consumer debt paid off in three years or less. And if that means your debt category is up to 25%, 30% even 40% of your income, so be it. Then you have to cut back elsewhere or make more money to have enough for the other categories.
As for how much you should spend on individual budget lines like “groceries” or “entertainment”, it depends on how much you make and how much you’re spending elsewhere. According to the Stats Man, in 2007, the average couple with kids spent about $194 a week on food. But if your family has special dietary needs, or a couple of teenagers, you can expect to have a higher than average food bill.
If you have no debt, and your company is contributing to a pension plan on your behalf — taking care of most of your saving — then you’ll have more to spend on Life. If you’ve previously spent money you didn’t have and now debt is eating your income, or if you’re living in a house that’s gobbling up more than 35% of your net, then you’ll have to cut way back on other categories or find a way to make more money.
Nobody’s percentages come out perfectly on every budget they do. (Yes, you have to do a budget every time your life changes in some way.) The key is to know where your money is going and to decide if you’re happy with how you’re spending it. The Life Pie helps you put things in perspective.